Bill Pei, CPA, is about to begin his audit of the accuracy of his clients accounts receivable. Based on experience, he expects that approximately 1 percent of the clients 40,000 accounts have errors. The total book value of receivables is $5 million. Pei has established $390,000 as the amount of tolerable misstatement, 5 percent for the risk of incorrect acceptance, and 10 percent for the risk of incorrect rejection. The auditor estimates the standard deviation of the accounts to be $45. Required:

a. Using mean-per-unit sampling, calculate the required sample size:

b. Now ignore requirement (a). Assume that as part of an attributes sampling plan using a tolerable deviation rate of 5 percent and a risk of assessing control risk too low of 5 percent, the auditor wishes to test the valuation of the receivablesthat is, each account will be considered as either correct or a deviation. The sample size required for this test is:

Additional information for requirements (c) through (g):

Now ignore your requirement (a) and (b) answers and assume that the auditor selected a random sample of 208 accounts, representing a total book value of receivables of $40,800. He found five errors, representing a $20,300 overstatement as follows:

Misstatement Book Value Audited Value 1 $26,000 $ 5,950 2 1,000 900 3 220 200 4 180 120 5 100 30 $27,500 $ 7,200 The standard deviation of the book value of the sample was $50, while the standard deviation of the audited values of the sample was $55.

c. Using mean-per-unit estimation, the projected misstatement for the population is: 1,057,600

d. 1. Using mean-per-unit sampling, the allowance for sampling risk (ASR) is: 139,445 2. Using the ASR above, the appropriate interval for use in deciding whether to accept or reject the population is: reject (Enter answer in the format $x,xxx,xxx to $x,xxx,xxx

e. Using difference estimation, the projected misstatement for the population is:

f. Assume a sampling interval of $24,038 ($5,000,000/208). Using MUS, calculate:

Projected misstatement:

Basic precision:

Incremental allowance for sampling risk:

Upper limit on misstatement: